Verizon Shares Down On Wireless Growth and Pension Costs
Posted on: January 28, 2009 - Email Article - Printable Version
The country’s largest wireless provider in terms of subscribers slightly missed analyst expectations with this morning’s earnings release. Verizon [VZ: 29.92, -0.34 (-1.12%)] shares were down over 5 percent during the day’s session as investors reacted to the numbers. Profits for the fourth quarter 2008 came in at $1.24 billion, or 43 cents a share, compared to $1.07 billion, or 37 cents a share, in the same period a year ago. On an adjusted basis, Verizon earned 61 cents a share compared to 62 cents a share a year ago. Earnings per share came in 1 cent below analyst’s expectations, according to Reuters estimates. Also, sales were up 3.4 percent to $24.6 billion from the same period in 2007, while analysts were looking for $24.74 billion.
Growth Remains
Even with slight misses in revenues and earnings, Verizon was able to maintain strong revenue growth in all of their strategic business operations including 12.3 percent wireless growth and 36.8 percent in their cable and broadband FiOS services. As for customer growth, some analysts had been looking for a slightly higher number than the 1.4 million adds in the wireless sector, but with over 300,000 new FiOS television subscribers and 280,000 new FiOS internet subscribers, it is clear management got it right with the heavy investment in the new fiber optic technology. The relatively new FiOS technology enables Verizon to offer services at higher speeds and greater efficiencies than their competitors by sending data through optical fibers instead of the outdated basic copper phone lines. Even as conventional wireline subscribers continues to plummet as Americans continue the mass exodus away from basic phone service to cell phones, FiOS will continue to be the driving force behind Verizon’s wireline operations.
Staying Strong
Even with higher expenses tied to severance packages for some labor cuts over the past quarter and evidence showing the recession has taken a bite out of Verizon’s growth, it is hard not to remain positive for their long-term prospects. As FiOS continues to ramp up, I predict that the slight slowing in wireless growth and corporate services, Verizon will be able to hit the ground running once all is said and done with this recession. Obviously, any further slowdown in expansion will put pressure on the stock in the near term, as well as continued expenses tied to their pension provisions, but with the recent closing of the Alltel, Verizon has asserted itself as a daunting adversary of rival AT&T [T: 27.26, -0.09 (-0.33%)]. I believe any continued downward pressure would be an overreaction to the tame numbers from the report and a possible buying opportunity; however I would maintain a cautious position for now and wait on the sidelines as the earnings season kicks off and the markets are likely to remain volatile.
- Chris Barrella
Disclosure: The mutual fund the author is associated with is long T.
The Following Stocks Were Mentioned In This Article: T, VZ
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